BUSS1000 Future of Business Lecture 5 PDF

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Notes from BUSS1000 Lecture 2 academic year 2020...

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BUSS1000 Future of Business Lecture 5 What is strategy? So what is strategy? -

Etymology - ancient Greek ‘strategos’ (meaning the art of the military commander-inchief, or chief magistrate) What is special about the general's job, compared with that of a field commander?

Definitions and differing perspectives - “Competitive strategy is about being different. It means deliberately choosing a -

different set of activities to deliver a unique mix of value” (Porter, 1996, p. 64) “An integrated, overarching concept of how the business will achieve it’s objectives” (Hambrick & Fredrickson 2001 , p 3) “Strategy is the direction and scope of an organisation over the long terms, which achieves advantage in a change environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations” (Johnson, Scholes, & Whittington, 2008, p 3)

Putting strategy in its place

Porter’s Generic Strategies What are Porter’s Generic Strategies - Draws on Five Forces - Porter (1980) argued that there are three internally consistent generic strategies that allow an organization to outperform competitors in the longrun  Overall Cost Leadership  Differentiation  Focus

Cost Leadership Strategy Aim: A firm which finds and exploits all sources of cost advantage and aims at a sustainable cost leadership strategy. Preconditions: - Customer’s price sensitivity - Identification of ‘optimal’ economy of scale - Preferential access to technology, raw materials, distribution channels Risks:

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Technological changes that outdate model Risk of imitation by new entrants Excessive concern on cost minimization leads to lowering customer value creation Vulnerable to predictable and unpredictable macro-level forces

Differentiation Strategy Aims: A firm seeking to be unique in its industry along with some dimensions of its product or service that are widely valued by customers Preconditions: - Customer’s price indifference - Possible to distinguish based on quality, reliability and service Risks:

- Maturity of industry/market - Paid cost is more than unseen cost (inconvenience, uncertainty, and potential unpleasantness associated with the purchase process.)

- Easy to lag behind competitors

Focus Strategy Aim: When a firm seeks a narrow competitive scope, selects a segment or a group of segments in the industry and tailors its strategy to serving them to the exclusion of others, the strategy is termed focus strategy - Cost Focus - Differentiation Focus Preconditions: - Heterogeneous customer need - Lack of synergies between the value chains associated with the product offering Risks:

- Highly susceptible to changes and moves of players at every single level Critiques and limitations of Generic Strategies - Porter suggested that organizations must select one strategy or be ‘stuck in the

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middle’.  Many scholars have found that successful organizations often employ ‘Hybrid Strategies’ where they combine generic strategies (Dess & Davis, 1984)  Porter himself accepted that Hybrid Strategies could exist (Prajogo, 2007) Doesn’t talk about implementation

Hambrick and Fredrickson’s (2001) strategic diamond Solving a problem we keep talking about - How many tools have we learnt so far? - “Missing however, has been any guidance as to what the product of these tools -

should be” (Hambrick & Frederickson, 2001, p 48) What is missing  Connection between framework and outcome

Why do we use the Strategic Diamond? - Problems of piecemeal strategy(ies) - Service strategy, branding strategy, acquisition -

strategy etc. “When executives call everything a strategy, and end up with a collection of strategies, they create confusion and undermine their own credibility” (p 49) Identified issues:  What does “we are pursuing a global strategy” mean?  What does “we need to develop a marketing strategy” mean?

Hambrick and Fredrickson’s (2001) Strategic Diamond - “If a business must have a single, unified strategy, then it must necessarily have parts. What are those parts?

- Strategy has five elements, providing answers for five ‘related’ questions 

Arenas

   

Vehicles Differentiators Staging Economic logic

Arenas - Where will we be active? - Which product categories? - Which product segments - Which geographical areas? - Which core technologies? - Which value creation changes? Vehicles How will we get there? - Licensing/franchising - Alliances - Joint ventures - Acquisitions - Greenfield

Differentiators How will we win? - Image - Customization - Price - Styling - Product reliability

Staging What will be our speed and sequence of moves? - Speed of expansion - Sequence of initiatives

Economic Logic How will we obtain our returns? - Lowest cost through scale advantages - Lowest costs through scope and replication advantages - Premium price due to unmatchable service - Premium prices due to proprietary product features

The goal of the Diamond - The diamond asks us to create a comprehensive strategy

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All of the elements are essential All of the elements require preparation and consideration All of the elements align with and support each other Implementation requires understanding of all five

What about testing the quality of your strategy? - Does your strategy fit with what's going on in the environment? - Does your strategy exploit your key resources? - Will your envisioned differentiators be sustainable? - Are the elements of your strategy internally consistent? - Do you have enough resources to pursue the strategy? - Is your strategy implementable? Limitations and critiques of the Strategic Diamond - Correct usage of the strategic diamond demands correct use of each and every other analysis

- Like every other framework – we produce only a snapshot -

 Remember that the only constant, is change  Strategy must evolve and be dynamic Can lead to excessive rigidity Think carefully about how long your strategy is valid for – 10 years? 5 years? 6 months? 1 week? Industry dependent Feedback loops and revision not embedded in the mode...